Google boss: International tax laws should be rewritten.
And adds: “Some have suggested the settlement which concluded the audit was a ‘sweetheart deal’, a cut-price tax rate. It was not …And let’s be absolutely clear: politicians play no part in deciding and settling tax audits. They set the rules, HMRC independently apply the rules and companies like Google follow the rules.
“We agree that the international tax system needs reform. We have long been in favour of simpler, clearer rules, because it is important not only to pay the right amount of tax, but to be seen to be paying the right amount. But changes to the tax system are not Google’s call. Reform must come from governments, not from the companies who are subject to their rules.”
We at Google believe taxes need simplifying
By Matt Brittin, Google UK CEO
Whether it’s a designer handbag, a bottle of single malt or a period TV drama, the UK is rightly proud of its exports.
British fashion earns the UK billions of pounds every year. In 2014, 99 million cases of Scotch whisky sold worldwide, with fast-growing sales in India and China.
In the past four years, the UK exported more than 600 television shows to viewers around the world. So, where should these booming British export industries pay most of their corporation tax? In those countries where people consume these great British products, or here in the UK where investment and ingenuity goes into creating what the world enjoys?
These industries are instructive examples of why international tax rules work as they do. It makes sense that if the UK is where the bulk of the creativity, expertise and investment happen, these exporters should pay most of their corporation tax in Britain.
Governments in countries like the US and India might like to see more taxes paid where the products are sold and consumed, but they benefit when a car-maker from Detroit sells vehicles in Scotland, or when a tech startup in Hyderabad sells software in Stuttgart.
That is because, for tax purposes, the majority of a company’s profit is attributed to where the core business development, decision-making, and risks are borne. For Google, that’s the United States. Our corporation tax bill for the last year was more than $3.3 billion, most of it payable in the US.
As much as I would like Google to have been created here in Britain, the fact is that Google is a US company. We employ around 20,000 software engineers in the US, compared with around 1,000 in the UK.
The US is where most of our products were designed and created, where most of our R&D takes place, and where we bear the most investment risk.
Some here in Britain have argued we should be paying much more tax given the sales we make in the UK. But that is just not how the tax system works.
The Institute for Fiscal Studies explains it very clearly: “The current tax rules are not designed to tax the profits from UK sales…They are instead designed to tax that part of a firm’s profit that arises from value created in the UK.”
So, what is the part of Google’s profit that arises from value created in Britain? I’m proud that over the last ten years we’ve invested heavily here and continue to do so.
In the UK we now employ over 4,000 people across a wide range of roles – including sales, marketing, legal, finance and software engineers who work on some of our most popular products, like Android and Maps.
They all contribute to Google’s success – and our UK corporation tax bill grows as a result. The rules require that our corporation tax bill is based on the value contributed by our teams in the UK, not on the sales Google makes to UK customers.
That value is precisely what HMRC examined in its six-year audit – an intensive review of our business to determine the amount of profit attributed to Google’s UK operation.
During the audit we were fully transparent and gave access to commercial information. They interviewed me and other members of Google’s team, they visited our Dublin operation and talked with our customers. They assessed the UK team’s contribution to Google’s profits using internationally agreed formulae and benchmarks.
Some have suggested the settlement which concluded the audit was a ‘sweetheart deal’, a cut-price tax rate. It was not. Google pays corporation tax on its UK profit at the standard rate – currently 20 per cent – the same as any other business in Britain.
And let’s be absolutely clear: politicians play no part in deciding and settling tax audits. They set the rules, HMRC independently apply the rules and companies like Google follow the rules.
Many argue that the system would be better and fairer if products were taxed where they are consumed rather than where they are created.
It may sound reasonable, but we should remember that such a change would also mean British exporters would pay more of their taxes abroad, where their products are consumed – the US government would get a swig of that single malt, or a cut of that designer handbag after all. And, perhaps oddly, most corporate tax would be paid in the countries with the most consumers – in populous countries like India and China – not where the value is actually created.
We agree that the international tax system needs reform. We have long been in favour of simpler, clearer rules, because it is important not only to pay the right amount of tax, but to be seen to be paying the right amount.
But changes to the tax system are not Google’s call. Reform must come from governments, not from the companies who are subject to their rules.